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The amendments to the Capital Requirements Directive (CRD) passed this month by the European Union contain two significant provisions.  The first is the 5% skin in the game retention required for issuers of securitized assets.  That provision has received the most press coverage, especially in the U.S..

 The second provision may be more significant to any potential recovery from this global financial crisis, although it has received very little coverage.  The provision mandates know what you own.  For European financial entities (banks, insurance companies and some investor funds), the provision means having real-time transparency into the loan-level performance underlying structured finance securities.  Issuers must supply this data as of December 31, 2010.

 The EU has essentially promulgated real-time, loan-level transparency (know what you own) as the de facto global standard.

 Why will know what you own now be the global standard?  Because there is no viable business model that would have a U.S. firm supply real-time, loan-level detail to European investors while continuing to provide something less to U.S. investors.

 Additionally, the European Central Bank is requiring that this timely, loan-level performance data be given to credit rating companies.  This data can then be factored into their current ratings so the ECB can better manage its risk.  The implications for our TALF program should not be missed.

 Because of the December 31, 2010 compliance date, we have now shifted to a Y2K scenario for the standard of real-time, loan-level transparency.